HTS Classification Guidelines: Get Your Tariff Codes Right

HTS classification guidelines are becoming increasingly important. With stricter customer enforcement, frequent trade and regulatory updates, evolving global trade policies, and the rise of AI-powered auditing systems, accurate classification is essential.

Here is how to take a proactive approach to ensure you get your tariff codes right.

What Is HTS? Foundational Principles

Harmonized Tariff Schedule (HTS) classification is a system used in the United States. It is used to determine taxes, duties, and regulations on all imported goods. 

Foundational principles of this classification system include:

• Understanding the structure of HTS, which is organized into chapters, headings, and subheadings. The first six digits are the international HS code, and the final four are specific to the United States.
• This classification system determines the correct duty and tax rates for imported products.  
• Accuracy matters to avoid fines, penalties, and delays. Use the HTS online database and adhere to the General Rules of Interpretation (GRIs).

Why HTS Classification Matters

HTS classification sets tariff rates for merchandise imported into the United States. Following this classification ensures regulatory compliance. In turn, you avoid financial penalties and operational setbacks. 

Here are the key reasons why HTS classification matters:

• Establish the correct customs duty and tax rates. This step will help you avoid misclassification (and the potential penalties that go along with poor classification).
• Ensure compliance with customs authorities (such as U.S. Customs and Border Protection). 
• Avoid delays by ensuring a faster, smoother clearance process.
• Access to potential trade benefits from free trade agreements (FTAs). You could benefit from reduced or free tariffs. 
• Improve internal management costing procedures to more accurately calculate product landed costs for budgeting and logistics. 

The Step-by-Step HTS Classification Process

When it comes to HTS classification guidelines and risk mitigation, follow these steps.

1. Determine Product Composition and Function

The first step is to identify the product. Accurate classification requires understanding a product’s function, composition, and intended use. 

Document everything — focus on the materials (composition), how it works (function), and its purpose (intended use). The GRIs should guide this documentation process. In most cases, if a product is complex, function typically takes precedence over material composition.

2. Review Chapter, Heading & Subheading Structure

Review the HTS nomenclature and section/chapter notes. The goal is to find the most relevant category. From organic chemicals to pharmaceuticals,  man-made filaments to furniture, you can find all relevant chapters on the USITC website.

3. Use the General Rules of Interpretation (GRIs)

The GRIs provide the legal framework for classification. Understand this set of six rules used worldwide to classify goods, ensuring consistent and accurate classification for customs purposes. Apply the six GRIs in order until the correct classification is determined. 

4. Consult Explanatory Notes, Binding Rulings, and Classification Opinions

Have a complex case? Seeking legal certainty? If so, refer to explanatory notes. These notes provide technical descriptions and practical guidance for classification. You can access specific examples and their appropriate classification. These notes are published by the World Customs Organization (WCO).

Importers can also request a legally binding decision from their national customs authority to ensure correct classification, referring to official Classification opinions. 

5. Apply Proprietary Tools and Seek Expert Support

There are several proprietary tools that can help streamline this step-by-step process, including those that assist with:

• The extraction of search keywords from product descriptions, query HTS databases, etc. 
• Code suggestions yield a list of potentially relevant codes to accelerate the initial search.
• Auditing and verification. This consideration especially matters when managing large volumes of SKUs.

Common HTS Mistakes and How to Avoid Them

Knowing some of the most common HTS mistakes can help you avoid shipment delays or seizures, financial penalties, legal action, a damaged reputation, and more. 

Stay mindful of these common HTS mistakes:

• Classifying by material instead of function. For example, classifying a product based on what it is made of instead of its primary use. 
• Using incorrect or outdated codes. This mistake often happens when you refer to old invoices without verifying the current HTS classification guidelines. 
• Failing to read notes and ignoring the HTS structure can lead to misclassification. 
• Trusting a supplier’s HTS code without double-checking. 
• Ignoring the latest CBD rulings and classification changes. How goods are treated at the port changes based on binding rulings, revocations, and reclassifications. 

To avoid these mistakes:

• Always stay up to date and use the latest HTS edition. 
• Begin with section and chapter notes, as these act as legal filters.
• Never guess or rely on others — check for updates and classify based on the GRIs.
• Pay attention to punctuation. For example, pay attention to the use of semicolons, commas, and colons in headings. 
• Always keep a detailed record of your classification process. Record technical specs, product descriptions, and relevant documentation. These details matter for audits. 
• Use official resources during classification. Look to binding rulings from customs authorities or the World Customs Organization’s (WCO) Explanatory Notes for guidance.

Compliance Best Practices for Accurate Classification

To ensure ongoing compliance, always follow a structured approach. When it comes to optimal HTS classification guidelines, focus on in-depth product knowledge, adherence to legal rules, rigorous documentation, and ongoing review. 

Be sure to:

• Document everything. Take note of the manufacturer’s datasheets, bills of materials, technical specifications, and the reasoning behind your chosen code. 
• Regularly conduct audits and reviews. This best practice especially matters if a product is updated or modified. 
• Integrate compliance across the organization. Ensure cooperation with purchasing, legal, and the product development team. Compliance concerns should be communicated across the entire supply chain. 
• Partner with an expert, licensed customs broker.
• Invest in the latest technology, such as trade compliance software. This software can help you track regulatory changes and manage classification data. 

J.M. Rodgers offers expertise, proprietary tools, and CPI methodology, all of which support HTS classification. 

Get Help: Partnering with a Licensed Customs Broker

Request a compliance consultation with a licensed customs broker or book a classification review. Get in touch today.